NEA: End of the line for small oil re­finer­ies

Agency aims to clean the air and up­grade sec­tor’s tech­nol­ogy by cut­ting ca­pac­ity

China Daily (Canada) - - BUSINESS - By DUJUAN dujuan@chi­nadaily.com.cn

China will shut down small, ob­so­lete petroleum re­fin­ing fa­cil­i­ties as it pur­sues a twopronged strat­egy of up­grad­ing the in­dus­try’s tech­nol­ogy level while im­prov­ing air qual­ity, ac­cord­ing to a doc­u­ment from the Na­tional En­ergy Ad­min­is­tra­tion. Re­fin­ing com­pa­nies are be­ing told to elim­i­nate units with an­nual ca­pac­ity of less than 2 mil­lion met­ric tons, ac­cord­ing to the doc­u­ment.

The doc­u­ment was pro­vided to China Daily by an in­di­vid­ual who at­tended a meet­ing about it at the NEA.

“The govern­ment is work­ing on im­prov­ing the in­dus­trial chain of the re­fin­ing sec­tor, which has shown an in­creas­ing fo­cus on clean pro­duc­tion and en­vi­ron­men­tal pro­tec­tion,” said Sun Yan­song, a re­searcher with ICIS-C1 En­ergy, a Shang­hai-based en­ergy in­for­ma­tion con­sul­tancy.

She noted that the au­thor­i­ties had an­nounced sim­i­lar ca­pac­ity-cut­ting plans in pre­vi­ous years, with limited suc­cess. She said she be­lieves the govern­ment will take stricter ac­tion this time.

In re­cent years, the do­mes­tic oil prod­uct mar­ket has been weak. Forc­ing out ob­so­lete ca­pac­ity will ben­e­fit the whole in­dus­try, said Sun.

The govern­ment also aims to limit re­fin­ers’ debt bur­dens.

Ac­cord­ing to the doc­u­ment, the cap­i­tal base — that is, com­pa­nies’ ini­tial in­vest­ment from in­ter­nal re­sources in new

The govern­ment is work­ing on im­prov­ing the in­dus­trial chain of the re­fin­ing sec­tor, which has shown an in­creas­ing fo­cus on clean pro­duc­tion and en­vi­ron­men­tal pro­tec­tion.” SUN YAN­SONG RE­SEARCHER AT ICIS-C1 EN­ERGY

re­fin­ing projects — should ac­count for more than onethird of the to­tal in­vest­ment. For ex­pan­sions, the cap­i­tal base should be more than 40 per­cent of the to­tal in­vest­ment.

The debt ra­tio of in­vestors in re­fin­ing projects should not be higher than 60 per­cent.

There are con­di­tions on crude oil sup­plies as well. All new re­fin­ing projects must en­sure they’ll have suf­fi­cient raw ma­te­rial sup­plies be­fore the project can be ap­proved. For Sino-for­eign joint re­fin­ing projects, the for­eign side must be able to sup­ply more than 60 per­cent of the crude.

The govern­ment won’t ap­prove new­pro­jects for com­pa­nies that fail to elim­i­nate ca­pac­ity un­der an NEA-ap­proved sched­ule.

The ad­min­is­tra­tion has drawn up a ca­pac­ity re­duc­tion timetable for ma­jor re­fin­ers, in­clud­ing PetroChina Co Ltd and ChemChina Petro­chem­i­cal Co Ltd.

PetroChina is to cut 3.1 mil­lion tons of ca­pac­ity in 2014, and ChemChina will cut 3.6 mil­lion tons by 2015, ac­cord­ing to data from the doc­u­ment.

Ac­cord­ing to ICIS-C1 En­ergy, China’s re­fin­ing out­put will peak this year. And with con­sump­tion growth of re­fined prod­ucts fall­ing to its low­est point in the past 10 years dur­ing 2013, the sec­tor faces con­tin­ued ex­cess ca­pac­ity.

In March, China was a net ex­porter of re­fined prod­ucts, ship­ping out 650,000 bar­rels per day while im­port­ing 560,000 bpd.

The NEA aims to fos­ter sev­eral large re­fin­ing com­pa­nies to achieve strong com­pet­i­tive­ness through in­dus­trial con­cen­tra­tion, com­bin­ing up­stream and down­stream re­sources.

In cities in­clud­ing Ningbo, Shang­hai, Dalian and Nan­jing, China will build large re­fin­ing bases with more than 30 mil­lion tons of an­nual ca­pac­ity each.

In other cities — Maom­ing and Huizhou in Guang­dong, Quanzhou in Fu­jian, Caofei­d­ian in He­bei and Tian­jin — re­fin­ing bases with ca­pac­ity of more than 20 mil­lion tons an­nu­ally will be formed.

Dong Xi­ucheng, vice-pres­i­dent of the School of Busi­ness Ad­min­is­tra­tion at the China Univer­sity of Petroleum, said it’s in­evitable that China will elim­i­nate out­dated ca­pac­ity and in­crease re­fin­ing ef­fi­ciency by in­dus­try in­te­gra­tion.

TONG JIANG / FOR CHINA DAILY

Work­ers in­spect pipe­lines at a re­fined oil stor­age fa­cil­ity in Puyang, He­nan prov­ince. Oil re­fin­ing com­pa­nies will have to elim­i­nate units with an­nual ca­pac­ity of less than 2 mil­lion met­ric tons as the coun­try up­grades its pro­duc­tion chain.

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